Applying the Lessons of ‘Moneyball’ and ‘Golden Motions’ to Your Business

As the founder of a business intelligence software company, it can be hard to explain my job to those outside my industry. Whenever I catch up with friends or family members, I can see the question coming a mile away: “What exactly does your company do again?”

My stock answer has evolved over the years, most often taking the form of an elevator pitch or mission statement. Unfortunately, those answers are better suited for a board meeting than a high school reunion. After many years of experimentation, however, I have figured out exactly what to say.

“You know that movie ‘Moneyball’?” I ask. “We do that — only for businesses.”

Thanks to this (admittedly dated) reference, people get the idea, remember the analogy and sometimes even go home and tell their friends. Mission accomplished (thanks, Brad Pitt)!

But there is a natural follow-up question that I hear from time to time: “How exactly is that done?” The answer is simpler than you might expect.

A good place to start is by understanding what “Moneyball” has meant to baseball. In the end, as Michael Lewis explained in the book that led to the movie, it all came down to a simple observation that a player’s on-base percentage and slugging percentage were undervalued predictors of runs scored. With this knowledge, Billy Beane’s Oakland A’s shed the biases of conventional wisdom, scouted using those performance measures and rocked the world of baseball by building a winning team without spending a lot of money. When other teams caught on to the joys of on-base percentage and slugging percentage, the A’s turned to other neglected metrics.

In these statistics, Mr. Beane had discovered behaviors that made players special in a statistically observable way. These behaviors are sometimes called golden motions. Using the principles of “Moneyball” is about finding the golden motions in your own universe of customers, partners, employees and prospects. Once you find them, you can use that knowledge to grow smarter, faster and more efficiently.

One of our clients, Coupaw, recently ran such an analysis on its affiliate marketing program. The company offers daily deals on pet products, and its affiliates are responsible for referring new subscribers to the company’s daily emails. It found its golden motion when it realized that it could identify its top-performing affiliates by measuring the return-on-investment of the subscribers they referred. Studying the company’s network of affiliates through this lens provided a wealth of insights and optimizations.

As a result, Coupaw rolled out a different incentive structure for affiliates in order to optimize for value instead of volume. It also identified affiliates that were referring the highest-value traffic and directed energy into building those relationships. According to the company’s affiliate manager, Corinne Formisano, Coupaw’s return on investment in its affiliate program has doubled as a result of these efforts.

At RJMetrics, we’ve seen similar results from this kind of analysis. For example, we collect information about how people interact with our product during a free trial. A few months ago, we set out to find the golden motion that makes free trial users most likely to convert into paying customers.

After studying a number of behaviors such as logins, sharing and user-creation, we discovered the golden motion: editing a chart. As soon as prospects open our chart editor, their likelihood of converting into paying customers skyrockets.

With this insight, we changed the self-guided tour of our site to include our chart editor and made sure that our account managers incorporated the editor into their training calls. Thanks to this and other improvements, our free trial conversion rate has more than doubled.

Thinking about business optimizations in terms of golden motions is really just a special approach to statistical hypothesis testing. It comes with its caveats but is a powerful tool for using data to change your behavior. All you need is a hypothesis and data you can trust.

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You're the Boss offers an insider's perspective on small-business ownership. It gives business owners a place where they can compare notes, ask questions, get advice, and learn from one another's mistakes. The blog also offers analysis of policy issues, and suggests investing tips.